NASFAA Summary of the Credit Card Accountability Act (CARD)

Yesterday the House of Representatives passed the Credit Card Accountability Responsibility and Disclosure Act (CARD) of 2009 (H.R.627), which amends the Truth in Lending Act (15 U.S.C. 1637(c)) "to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes." Earlier this week the Senate passed this amended version of the House's Credit Cardholders Bill of Rights. The House has now cleared the final bill for President Obama's signature; the President had urged Congress to pass this legislation before Memorial Day and is expected to sign it into law without delay.

The bill creates important consumer protections such as a prohibition on retroactive rate increases; a requirement that any extra payments by consumers must be applied to balances with the highest interest rate (such as cash advances); and a rule specifying that rate hikes caused by late payments be restored to the lower rate after six months on on-time payment. The bill also prohibits increasing a consumer's rate on existing balances based on late payments to another lender, a practice known as "universal default."

The bill requires that any advertisement for a free credit report in any medium shall prominently disclose that under federal law, free credit reports are available from AnnualCreditReport.com. In the case of an advertisement broadcast by television or radio, the disclosure required shall consist only of the following: "This is not the free credit report provided for by Federal law".

There are many provisions in the bill that affect college students and institutions of higher education; indeed, college students are singled out for special treatment. Some of the provisions apply only to "traditional age college students", defined as anyone between 18 and 21 years of age who is enrolled full- or part-time in an institution of higher education. (Presumably, some of the consumer protections do not extend to 18-21 year olds who are not enrolled in college, and it is not clear how companies would identify student status other than student self-reporting). What is clear is that Congress is regulating situations where companies are specifically marketing to college students, and intends to further scrutinize affinity relationships between institutions and credit card companies.

The bill:

Prohibits extensions of credit to consumers under age 18, unless they are emancipated under state law, or the consumer's parent or legal guardian is designated as the primary account holder. Minors are allowed to have a credit card in their name on a parent or legal guardian's account.

Amends the Fair Credit Reporting Act to prevent people under 21 from receiving pre-screened credit offers.

Prohibits card issuers or creditors from offering to a student at an institution of higher education any tangible item to induce such student to apply for or participate in an open end consumer credit plan offered by such card issuer or creditor, if such offer is made (a) on the campus of an institution of higher education; (b) near the campus of an institution of higher education, as determined by rule of the Board of Governors of the Federal Reserve System; or (c) at an event sponsored by or related to an institution of higher education.

For full-time or part-time students attending an institution of higher education who are between 18 and 21 years of age, the legislation:

Prohibits the issuance of a credit card or open-end consumer credit plan unless the student has submitted a written application to the card issuer;

Requires creditors to obtain proof of income, income history, and credit history;

Limits the credit line from any one credit card to the greater of 20 percent of annual income or $500, unless there is a co-signer;

Limits the total credit line from all credit card sources to 30 percent of annual income, unless there is a co-signer;

If there is a co-signer, requires written co-signer approval before granting any increase in credit line; and

Prohibits creditors from granting more than one credit card account to college students who have no verifiable annual gross income and already have a credit card account with that creditor, or any of its affiliates.

The bill puts new reporting requirements into place for credit card issuers and institutions of higher education. The legislation:

Requires institutions of higher education to publicly disclose any contract or other agreement made with a card issuer or creditor for the purpose of marketing a credit card.

Requires each creditor to submit an annual report to the Board of Governors of the Federal Reserve System, containing the terms and conditions of all business, marketing, and promotional agreements and college affinity card agreements with an institution of higher education, or an alumni organization or foundation affiliated with or related to such institution, with respect to any college student credit card issued to a college student at such institution. Reports must include (a) any memorandum of understanding between or among a creditor, an institution of higher education, an alumni association, or foundation; (b) the amount of any payments from the creditor to the institution, organization, or foundation during the period covered by the report, and the precise terms of any agreement under which such amounts are determined; and (c) the number of credit card accounts covered by any such agreement that were opened during the period covered by the report, and the total number of credit card accounts covered by the agreement that were outstanding at the end of such period.

Directs the Federal Reserve to submit to the Congress, and make available to the public, an annual report that lists the information concerning credit card agreements submitted to the Board by each institution of higher education, alumni organization, or foundation.

Directs the Comptroller General of the United States to review the reports submitted by creditors, and the marketing practices of creditors to determine the impact that college affinity card agreements and college student card agreements have on credit card debt, and submit a report to the Congress.

The bill also includes a "Sense of the Congress" - a non-binding recommendation that does not have the force of law - that each institution of higher education should consider adopting the following policies relating to credit cards:

That any card issuer that markets a credit card on the campus of such institution notify the institution of the location at which such marketing will take place;

That the number of locations on the campus of such institution at which the marketing of credit cards takes place be limited; and

That credit card and debt education and counseling sessions be offered as a regular part of any orientation program for new students of such institution.

The effective date of provisions of the bill vary, but in general they will take effect from 5 to 12 months from date of enactment.